A/S SULLIVAN MEETING WITH AFGHANISTAN MINISTER OF

C O N F I D E N T I A L SECTION 01 OF 02 STATE 111287

SIPDIS

E.O. 12958: DECL: 10/14/2018
TAGS: EAID ECON EFIN EINV
SUBJECT: A/S SULLIVAN MEETING WITH AFGHANISTAN MINISTER OF
FINANCE AHADY

Classified By: EEB A/S Daniel S. Sullivan for reasons 1.4 (b),(d).


1. (C) Summary: In an October 15 meeting with A/S Sullivan,
Afghanistan's Minister of Finance Ahady spoke of his primary
concern that the global financial crisis might mean less
international donor assistance for Afghanistan. He also
asked for USG assistance in securing greater debt relief from
several countries as well as help in encouraging the IMF to
reconsider its "unrealistic" revenue targets for the
Government of Afghanistan. Ahady was optimistic about
reaching a transit trade agreement in the very near future
with Pakistan, but expressed his concern about Pakistani
implementation of such an agreement. End summary.

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Minimal Effects of Global Financial Crisis on Afghanistan
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2. (C) A/S Sullivan expressed his interest in what effects,
if any, Ahady anticipated the global financial crisis would
have on Afghanistan. Ahady responded that his primary
concern was whether there would be enough resources from
donor countries to continue financially assisting
Afghanistan. Besides this concern, Ahady said that any
further impact would be minimal, considering Afghanistan's
financial market was not as developed or as integrated in the
global economy. He did, however, note that he has taken the
current global experience as a lesson to improve supervision
of Afghanistan's banks as a precaution.

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GOIA Asks for USG Assistance with Third Country Debt Relief
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3. (C) Ahady mentioned several concerns about debt relief
from other countries and asked for USG assistance.
Currently, Ahady said that Afghanistan owes Kuwait
approximately USD 20 million on a 1977 loan the Kuwait Fund
for Arab Economic Development (KFAED) extended to finance a
sugar factory in Afghanistan. The KFAED's January 2008
proposal to reschedule the debt is equivalent to a 67 percent
reduction of the debt, given the longer period of repayment.
However, Ahady noted that Paris Club terms require
Afghanistan to accept from other creditors no less than an
80-84 percent write off in net present value terms. Ahady
understood that the Kuwaitis were not opposed to further
negotiation and asked for USG assistance to push the Kuwaitis
to provide treatment comparable to Paris Club terms.


4. (C) Ahady also mentioned that a long outstanding debt
(from the 1970s) of USD 32 million to the Czech Republic had
been sold by the Czech government to a private concern (of
Iranians) who were now suing the GOIA for repayment in the
amount of USD 68 million in a European court (Ahady was
unsure which court). Ahady was adamant that the original
debt obligation should have remained between the two
governments concerned and said he was surprised how this
situation could have happened.


5. (C) At this point, Ahady said that the Paris Club had
forgiven 94 percent of its debt under the enhanced Heavily
Indebted Poor Countries (HIPC) initiative and that the GOIA
expected an additional write-off of USD 1 billion next summer
if Afghanistan completes the HIPC process.

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IMF Goals Too Ambitious
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6. (C) The IMF's expectation that Afghanistan increase its
revenue 32 percent over last year was a major sore spot for
Ahady. While the GOIA had met their six-month target, Ahady
said that the next six month target will be even more
difficult to meet. Ahady mentioned that the IMF envisioned
that Afghanistan could raise revenues through inflation and
higher revenue collection, however, Ahady noted that rising
food prices had forced the GOIA to eliminate custom tariffs.
Ahady said he had voiced his concerns to the IMF over the

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weekend, but hinted that the USG could also raise this point
with the IMF.

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Transit Trade
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7. (C) Following up on A/S Sullivan's discussions on transit
trade between Afghanistan and Pakistan during the
U.S.-Pakistan Economic Dialogue, A/S Sullivan asked Ahady
about any progress the two countries had made. Ahady was
optimistic that "we can resolve the issue, but implementation
will be difficult" on the part of the Pakistanis. He
referred to the existing 1964 treaty with Pakistan on transit
trade, which he claimed the Pakistanis have failed to
implement. On the general worsening of Pakistan's economy,
Ahady said that he was more concerned about the effects of
Pakistan's deteriorating security on Afghanistan, which he
believed would hurt Afghanistan's customs revenues and
imports, especially in the FATA/Northwest region.
RICE